Business bosses are putting their fund-raising plans on their personal credit cards for 2014, according to new research by peer-to-peer (P2P) firm, rebuildingsociety.com.
The research shows 37% of business owners planning to borrow money or raise additional capital outside of traditional bank borrowing in the next year will use their personal credit cards to raise money. This compares with 12% who are looking to use P2P lending.
In total around 290,0002 SME owners will use their personal cards to raise cash with approximately 150,000 taking money out of personal savings. Similar numbers will be borrowing from friends and family in order to fund business expansion. Around 50,000 SME owners are remortgaging their own home while another 50,000 plan to sell their home or sell a second home.
However the research by rebuildingsociety.com shows using personal credit cards – where standard APRs for cash withdrawals can be as high as 29.9% – are the most popular form of personal borrowing methods.
Its research shows SME owners are committing large sums of their own cash to businesses – around 56% of owners have invested some of their own cash in their business either to finance debt or support growth in the past year.
The average amount invested is around £22,700 – although the median amount that owners have invested is less than £10,000 in the past 12 months.
Daniel Rajkumar, managing director of rebuildingsociety.com, said: “Using credit cards to fund businesses is not necessarily a bad idea if owners have plans to repay debts and clearly SME owners are willing to do whatever it takes to ensure their businesses stay on track. More often than not though, it is a quick fix and the hidden costs of a credit card can spring some nasty surprises.
“If more people had heard of P2P lending, we believe more would use it.
“56% of company owners have used their own money to support their company in the past year. They should consider a business loan instead and protect their personal finances – the regular repayments are easy to manage and all costs are revealed in advance. Credit cards can then be used for really short term borrowing, which is what they were designed for.”
